3 Steps to Get a Proof of Funds Letter for Your Next Multifamily Deal

We multifamily syndicators have it tough: We’re asked to make stuff happen without having all the resources ourselves (simple things, like money or experience!).

So when a broker tells us, “The seller will entertain your offer but only with proof of funds,” we’re stumped because we don’t HAVE the funds because we’re going to raise it and presumably have it all at closing.

How to Get a Proof of Funds Letter for Your Next Deal

If you can’t produce the proof of funds yourself, you’ll have to get it from someone else. That “someone else” is going to be someone who has the necessary liquidity and likes you.

Note that I didn’t say that the person needs to commit to investing with you. That may or may not happen. All that you need right now is a Proof of Funds Letter from the person. This is typically a letter from the person’s financial institution that says they have X dollars with them. The letter does not obligate the person to use that money in any way.

In other words, it doesn’t cost them or obligate them to anything.

The only thing YOU need to do is find someone with the right net worth and ask them to help you.

Step #1: Create a Sample Deal Package

A “Sample Deal Package” is an investor package representative of the kind of deal you want to do. Everything is real (the photos, financials, etc.); the only difference is that you don’t actually have it under contract.

But that’s not the point. The point is to have something you can use to talk with others about helping you with your real estate investing goals. But if you don’t have a track record or a deal under contract, you have nothing to talk about.

Step #2: Reach Out to People Who Can Help You Get a Proof of Funds Letter

Create a mind-map of everyone you know. Create circles for every social group you’re part of: neighbors, friends, family, co-workers, church/temple, sports, clubs, etc. Then in each circle, write down the names of people you know. This is your immediate sphere of influence, which contains people who already know you and presumably trust and like you.

Your goal is to get a series of YES’s from people. So don’t start out the email with, “Will you give me a Proof of Funds Letter, yes or no,” but instead tell them in general terms what you’re doing and ask if they would be willing to do a 5-minute phone call with you to give you some feedback.

In that phone call, you want to describe what you’re doing and ask them if they would be willing to help.

Their answer should be, “Yes, how can I help?”

That’s when you tell them that you’re looking for a Proof of Funds Letter for $xxx,xxx, and do they know anyone?

That might say that they could do it. Or perhaps they can refer you to someone they know well.

Then follow-up with any referrals you get and repeat the process.

Remember these points:

Don’t Discriminate! Talk to everyone you know, whether you know they have the net worth or not. They might have it or they might not. They may be able to at least refer you to someone who might.

It’s a Number’s Game! Realize that only a small number of people you talk to will have the net worth for the Proof of Funds Letter, maybe not any of them. Don’t be discouraged! Just get an agreement for your contact to help you, and then encourage him or her to refer you to someone else they know.

Step #3: Request a Proof of Funds Letter

Once you’ve found someone who might be able to do the Proof of Funds Letter and is interested in helping you, schedule an in-person meeting with them. In that meeting, make the person comfortable with you by talking about your story and experience, about what you’re trying to do, and about the team you’ve built to help you. Use your Sample Deal Package to talk about what a deal could look like, answer any questions, and address any objections.

Then tell them what you’d like them to do, which is to ask their financial institution (bank, financial advisor, or brokerage) to write them a Proof of Funds Letter.

That letter is usually on the institution’s letterhead and simply states that their client has $xxx,xxx with their institution and to contact them for any questions.

Conclusion

The Proof of Funds Letter is a very SIMPLE but POWERFUL addition to the Offer Package.

Simple, because it costs nothing to produce and doesn’t obligate anyone to use the funds for the prospective deal.

Powerful, because it makes your offer package look serious and sets you apart from many other buyers making offers.

Is it easy to get? That depends on your personal network. If you already know high net worth individuals, it’ll take you a couple of calls. If you don’t, you’re going to have to mobilize your sphere of influence to help you. But stick with it, and you shall have what you desire.

Talk to me. What else have you done to address this “Proof of Funds” challenge? (Like hard-money Proof of Funds letters perhaps?) What’s worked for you?

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About Author

Michael Blank’s passion is being an entrepreneur and helping others become (better) entrepreneurs. His focus is buying apartment buildings by raising money from private individuals. He’s been investing in residential and multifamily real estate since 2005. He is the creator of the Syndicated Deal Analyzer and the eBook "The Secret to Raising Money to Buy Your First Apartment Building".

Thanks for sharing this and the other articles. I am also hoping to better understand how to structure a deal for potential investors. Can you share what a “typical” deal would look like? Is it all equity, all loans with guaranteed rate of return?

I currently own a 7 unit which has been profitable and I am looking for larger properties. I do have funds for another building but would prefer to spread it out over several purchases.

Has anyone used an online proof of funds service like this one: for example: http://www.atlanticequity.net/proofoffunds.html
I have not because one, I don’t know to what extend it could be seen as fraudulent, and two, because I don’t know to what extend it could blow my deal if there is any way to tie the POF back to that site.
But I would be interested in other people’s opinion…

I’m a little confused as to how this works? The Proof of funds letter will have the person (who’s doing the favor) name, however you will be making an offer under your own name . How does a proof of funds with someones else name work together with your own offer?

Hi Letisia – this is a good point, but many sellers either don’t pick up on this or don’t care. I’ve found the POF is simply the seller’s requirement to the broker: “don’t bring me any offers without POF”. Once the agent has satisfied the requirement, he can present the offer.

If a seller INSISTS on seeing POF in the name of your LLC and you can’t convince him that that’s not possible, then it’s time to move on. Hope that helps.

Hi Michael-
I am a hard money lender, and often generate a POF for my clients, or potential clients. I work with single or multi fam residential housing. The POF for me can be as simple as getting a one page on-line account print-out of the “Cash available” or Cash balance” in my checking, saving, Self-directed IRA, or any other account, or combination of accounts. If the agent or buyer insists on a letter to go with it, easy to type up and print. This does NOT have to be from a corporate entity, BTW!

Your local real estate group will have at least a couple of people that can do this for you.

Note too that when you say “Only a small number of people will have the net worth to produce a POF, maybe not any of them”–it’s not about net worth. I have lots of net worth, but not always “cash available”- same with your friends, family, colleagues. So someone with small net worth may have enough funds accessible in a savings account or CD, where a wealthier individual may be all tapped out of liquid cash at the moment. Your buyer needs to see a snapshot of actual cash.

And in my world, at least, the buyer does not care who is on the POF if I am buying all cash with no contingencies for funds approval by an outside institution on the contract to purchase. A bank with an REO might get a bit testy about the buyer/funder relationship. I don’t work with banks any more, period, as they waste so much of my time and often kill deals.